Sn801 US Health Insurance Taxation

Question 1

ER provided health insurance taxation

Other than FSA, MSAs, etc

Answer 1

1. Employee not taxed for employer-paid insurance premium
2. For health insurance other than medical, if paid with after tax premiums, benefits not taxed and vice-versa
3. Reimbursement for medical expenses are not taxable
4. Post retirement medical coverage
   
   4. 1 employer-paid plan for retirees is not taxable
   5. 2 contributions may be deductible by employer

Question 2

Discussion taxation of cafeteria plan, aka, FSA

Answer 2

1. Disadvantage: compliance with rules
2. ADV: cost not taxable, yet substitutes for taxable wages
3. Election must be made before plan year, situations exist where election changes are permitted within the year
4. Employees may choose between cash and “qualified benefits”
5. Section 125 qualified benefits
   
   5. 1 premium for A&H coverage, including HMO
   6. 2 premiums for LTD
   7. 3 group term life up to 50,000
   8. 4 qualified group legal services and dependent care
   9. 5 salary deferrals under 401k
   10. 6 medical care reimbursement

Question 3

Cafeteria plan tests

Answer 3

1. Eligibility test measures whether plan discriminates in favor highly compensated
   
   1. 1 part one: no employee required to complete more than three years employment for eligibility and all employees subject to uniform eligibility requirement
   2. 2 part two: IRS evaluating facts and circumstances
2. Contributions and benefit rest
   
   2. 1 mathematical testing as well as nondiscrimination in benefits
3. Key employee concentration test
   
   3. 1 nontaxable benefits to key EEs do not exceed 25% of aggravate benefits to all EEs

Question 4

US personal income taxes and health insurance

Answer 4

1. Premium for medical care insurance are deductible
2. Premiums for nonmedical benefits not deductible
3. All benefits from personal health insurance are tax-exempt
4. Only unreimbursed medical expenses are deductible
5. Premiums for qualified LTC eligible for deduction
6. “Qualified LTC” definition
   
   6. 1 specific benefit trigger
   7. 2 only coverage is for LTC
   8. 3 does not duplicate Medicare
   9. 4 guaranteed renewable
   10. 5 no cash value
   11. 6 nonforfeiture benefit